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As I mentioned in my definition about financial planning it is a process where individuals achieve their short term or long term financial goals. To achieve them they need to plan on where his current assets are lying and how they need to be dedicated towards achieving the preferred goal. But then financial planning cannot be overstated among this reason only. Primarily three factors are responsible for the same:-

1)Inflation

2)Changing lifestyles

3)Unforeseen contingency in short run

Inflation:is a situation where too much money chases a limited number of goods. This leads to fall in the value of money. It is also expressed as a raise in the general price level. E.g. a product that costs Rs.100/- at present would cost Rs.110/- a year from now, assuming that the price rise is 10%. This is the impact of the rising prices over one year only. Now over a 25-years period, assuming that inflation continues as 10% the same product will be available at Rs.1083/-. So that is what inflation does. The difference of a product value which has gone four times of what it was 25 years before. That is where your financial planning should play a very significant role.

Planning can ensure that one is equipped to deal with the impact of such inflation concerns, especially in phases like retirement when expenses continue but income schemes dries up. One needs to have a corpus built over a period of time, so that the supply of your cash even after you retire or if the regular flow of income through your salary or business dwindles, you are still able to run your monthly expenditures. This corpus to be built requires a lot of planning.

Changing lifestyles:With high disposable income, it is common for individuals to upgrade their standard of living, for e.g. cars that were considered a luxury not too long ago, have become necessity today. Financial planning has a role to play in helping individuals in both upgrading as well as maintaining their lifestyles. It aids in meeting the expenditure that an individual might have to cope up with. Sound financial planning can enable him to easily mitigate such situations without straining his finances.

Unforeseen contingency:Financial planning not only helps individuals in determining and facilitating for long to medium term goals but a sound financial plan can be of assistance for a very short period as well. Although inflation and changing lifestyle provides investors an insight to predict and plan for their future needs and requirements, planning can not only be justified because of these long term goal scenario. There is lot an investor can do to also bridge his current financial apathy.

Financial planning plays an important role in your current situation where in the short term money that is required for a short period, say, a year or two (depending upon individual to individual scenario) needs to be dealt with. Here you deal with your debt scenario. A scenario where you need to see how your liquid situations are placed. How your investments in a safer instrument like your savings or your fixed deposits are ought to be.

You can come to a situation in your life when perhaps you need more of a period to fall back upon with your debt or your safer asset. In those periods of time, you need to plan how your liquidity or your cash positions are placed. You need to see how well you are equipped with your monthly expenditure and for how long you need to get then done. A situations where your regular expenditure gets paid of.

In the current scenario globally, you have been already seeing recession in the developed countries and a slow down in the growth of the developing ones like India and China. There can be instances when you find yourself out of work or a slow down in your own business.

Therefore when expenditures are placed in and they are regular and fixed to make your life cycle running, any such slow down or any such retrenchment from the work can be a very difficult situation and in order to overcome that situation, you need to work towards your short term cash management. To see what is to be planned for your 1 -2 year horizon.

To conclude planning is not only about your planning for a long run, planning against inflation or upgrading your lifestyle. It is also to do with your present situation in life. An individual has to plan to be well equipped with life situations and a cushion is done to his. To take care of unforeseen life situations.